Turkey - Economic forecast summary (June 2015)

Growth weakened in early 2015, after a short-lived upturn in late 2014. The uncertainties associated with the forthcoming legislative elections and ongoing geopolitical tensions in the region are holding back investment and consumption spending. GDP growth is projected to pick up gradually over 2015 and 2016, after the “wait and see” attitudes of businesses and households dissipate, but to remain below potential.

Against the backdrop of large foreign financing needs and volatile capital flows, inflation – which remains far above target – will need to be brought down. To further rebalance demand from domestic to external sources, freeing up the productivity potential of the business sector and achieving durable competitiveness gains is crucial. The implementation of key product and labour market reforms would spur growth.

Private investment peaked in 2011 after a swift recovery following the global crisis, but has since been sluggish. In contrast, government investment, mainly in infrastructure, continued to increase until the end of 2013 and provided support during a time of volatile economic activity. Exchange rate uncertainty, corporate leverage and foreign exchange exposures, and regional geopolitical tensions will influence the pace of recovery of investment.